Budget Resolutions and Economic Situation

Kwasi Kwarteng Excerpts

Thursday 24th June 2010 Commons Chamber

[Mr Tom Clarke (Coatbridge, Chryston and Bellshill) (Lab)]

I have seldom been so disappointed with a speech by the hon. Member for Bermondsey and Old Southwark (Simon Hughes) as with the one that we have just heard. I suspect that he will find life even more uncomfortable as time goes on. Having listened to the speech by the Secretary of State, and then heard the support offered by the hon. Gentleman, it seemed to me that many Liberal Democrat supporters will be thinking that this must be the biggest conversion since the Chinese general baptised a whole army with a hosepipe. We have had a whole election campaign in which many of the things commended today by Government Members were not only blatantly opposed by Liberal Democrats, but disowned.

I have had the privilege of serving for many years in the constituency in Lanarkshire that I represent, where my next-door neighbour was the late John Smith. More than once, he said to me, “You know, I judge a Budget on the impact I think it has on ordinary young men and young women, with all their aspirations, living in a council house in Lanarkshire.” It is on that test that I make my views clear.

We have heard today a defence of a Budget that is thoroughly unfair and absolutely vindictive towards a large number of people in this country, region by region, not least those in my own constituency. I am not at all surprised that the Conservatives have supported what is a Tory Budget; it is the kind of Budget that they have always wanted to introduce, with or without a global crisis. However, I have to say that the apologies from the Liberal Democrats are profoundly unconvincing, as they have shown again today. As Jeremy Thorpe might have said, “Greater love than this no man has—that he laid down his principles to save his Mondeo and his red box.”

I have to tell Government Members frankly that their claims for this already discredited Budget stand in stark contrast to the consequences for my constituents in Coatbridge, Chryston and Bellshill. For several years before the election, and then again during it, the Conservatives talked about “a broken Britain”, but no Budget has done more to introduce a broken Britain than this one. The most vulnerable have been attacked, with housing benefit cut, child benefit frozen, the health in pregnancy grant scrapped, and the maternity grant slashed—and we are told that this is a fair Budget.

Then we come to what I would regard as perhaps the most appalling aspect of this Budget—the increases in VAT, hugely painful because they are clearly regressive. A 2008 report by the Institute for Fiscal Studies demonstrated that cuts in VAT benefit the poorest 10% most, while increases hit them hardest. That is why during the election the Tories were particularly ambiguous on this specific issue, although I have no doubt that they had this policy in mind all the time. To be fair to the Liberal Democrats, they did warn us—for example, by unveiling a poster showing a “VAT bombshell”, with their leader standing beside it. What we got on Tuesday was a Trojan horse with their leader and his friends standing inside it.

We are told that we are all in this together—that this Budget is indeed fair. I invite the House, then, to contemplate for a few moments what it means for a constituency like mine. In Coatbridge, Chryston and Bellshill, the average wage of those in work is £18,000. Unemployment stands at 7.4%—lower than in 1997, but clearly unacceptable. Let us look at Tatton, the Chancellor’s constituency. The average wage is over £25,000, and unemployment stands at 2.9%. In Twickenham, the Business Secretary’s constituency, the average wage is over £33,000, and unemployment stands at 2.5%. Yet this Budget is being applied to the whole nation.

Of course there is a crisis, as recognised most recently in the letter that President Obama sent to those involved in the G20. However, the words that he repeatedly used about investment, about real fairness—and, above all, about growth—were hardly reflected in the Budget that we are asked to approve. More sustainable ways to reduce the deficit clearly apply to the growth that President Obama has promoted and that, along with progressive taxation, Labour Members strongly support.

I can see that for the Tories this is a matter of ideology. They do not like the public sector: they have made no bones about that. The public sector provides education, excellent services from the police, and infrastructure for providing new jobs—and, my heavens, we will need them after this Budget. How can they possibly argue that this Budget will not lead to unemployment? We need to build more schools. We need to make more industrial parks available, hoping to invite inward investment, via the regional authorities, and making more money available so that the Government are creating the environment by which jobs can be provided.

[Kwasi Kwarteng (Spelthorne) (Con)]

What does the right hon. Gentleman think about the remarks written down by his party’s former Chief Secretary to the Treasury, the right hon. Member for Birmingham, Hodge Hill (Mr Byrne), who said, I believe, “There is no more money”?

[Mr Clarke]

I had assumed that the hon. Gentleman had a better sense of humour. It was clear to the whole country that it was a joke, so I do not regard that as being a serious point.

The Government blame the public sector for the recession, but what about the banks? [Interruption.] We must ask that question. My right hon. Friend the Member for Doncaster North (Edward Miliband) dealt at some length with how we have approached that important matter. While the Government have been hammering away at the poorest people in the poorest parts of our country, they have treated the banks with a feather duster. They have hardly responded to the problems that the banks themselves created, and no Member on their Benches can defend that.

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[Clive Efford (Eltham) (Lab)]

This is my first speech in the new Parliament, so let me take this opportunity to say what a pleasure it is to see you in your position, Mr Deputy Speaker.

One of the first things that we need to say about the Budget is that it is quite clear that the underlying narrative is an assault on the size of the state. It is not merely an attempt to deal with the deficit following what has been described as a profligate former Labour Government. It is an ideological assault on the state based on the belief that reducing the size of the public sector will create space and that the private sector will inevitably grow and fill the vacuum. Without question, this Budget is—apart, perhaps from the absence of the NHS from the cuts—the Budget that Margaret Thatcher always wanted to introduce. But who would have thought it would be the Liberal Democrats who would give the Conservatives the power to wield the axe?

The Deputy Prime Minister sat through the Budget nodding in support of every swing. We all remember the warnings that he gave during the election about what the Conservatives would do if they got into power—the VAT bombshell—but what changed? I think he is suffering from Stockholm syndrome, which is what happens when a hostage becomes emotionally attached to the people who are holding him captive. It is quite clear from his response to the Budget that there is something going on. He has now collaborated in the biggest robbery since Patty Hearst just went to the bank.

Perhaps I am being unfair. It could be that the Liberal Democrats just cannot help themselves. I am reminded of an experiment at Stanford university—the Stanford prison experiment—in which students were given the roles of prisoners and jailers. Very quickly, two thirds of the jailers became very sadistic, but the peculiar thing was that the prisoners, although they were free to leave at any time, decided to stay and take the sadistic treatment being dished out. I think that something is going on here. The Liberal Democrats who have taken the thirty pieces of silver and the Toyota Prius cars are clearly taking on the role of the sadistic jailers who have adopted the policies in the Budget. The Liberal Democrats who are left—I do not know what the collective term for them should be, but perhaps it could be dupes, as that is a term that someone has used recently—are unable to free themselves. They have internalised their grief and they are going along for the rollercoaster ride on the track that has been laid by the Conservatives in this Budget; they are hanging on for a white-knuckle ride.

There are endless quotes from the general election in which Liberals warned us about the Conservatives and what they would do in government, so there is no mandate for the Liberal Democrats to support the Budget. The majority of people who voted at the last general election voted for the parties that opposed the sort of cuts that are in the Budget.

The fact that we need to address the deficit is without doubt. If Labour were in government we would be cutting public services, and people would feel the consequences of those cuts; there is no doubt about that. However, the size and scale of what we have got from the coalition Government is beyond anything that anyone has attempted in the UK before. In one Budget, they are cutting back the size of the state, over six years, beyond what it was when Labour came into power 13 years ago. Under the guise of reducing the deficit they have set about reducing the size of the state, with an enthusiasm that Margaret Thatcher could only look on in wonder.

[Kwasi Kwarteng]

The hon. Gentleman mentions the deficit; who does he think was responsible for it?

[Clive Efford]

The hon. Gentleman will probably know the history of this matter. Until November 2008 there was an agreement in this House about how to deal with the deficit. The Conservatives supported what the Government of the time were doing, so I suggest that he go back and look at the facts of what was going on.

The Liberal Democrats conveniently forget the statements that they made expressing their fear of what the Tories would do. I remind the House of one that was made at the start of the general election campaign. In an interview with The Observer, the leader of the Liberal Democrats, the right hon. Member for Sheffield, Hallam (Mr Clegg), said this about a new Conservative Government:

“They then turn around in the next week or two and say we’re going to chuck up VAT to 20%, we’re going to start cutting teachers, cutting police and the wage bill in the public sector. I think if you’re not careful in that situation…you’d get Greek-style unrest…be careful for what you wish for.”

I think that those are very wise words.

The Government have also prayed in aid what has gone on in Greece, Sweden and Canada, but my right hon. Friend the Member for Doncaster North (Edward Miliband) pointed out at the Dispatch Box that comparisons with Greece are utterly ridiculous. In Sweden they cut back public expenditure by 20% over 15 years, an approach that bears no comparison with the scale of what is being attempted here. It is true that the Canadian Government carried out a consultation exercise, but that was confined to short-term measures to deal with the deficit, and the intention was always that there would be a return to expenditure.

What we are seeing is a permanent cut-back of the state, and a withdrawal from expenditure for ever. That is what the people of this country are being asked to participate in through this consultation.

The hon. Member for St Ives (Andrew George) is the only Liberal Democrat in the Chamber. I am not surprised that there no others participating in this Budget debate. I have quoted the party leader as saying

“be careful what you wish for”,

and I hope that the hon. Gentleman will remind his friends of that, especially the ones who cheered this Thatcherite Budget. Supporting this Budget is a proclamation of an intent to reduce the size of the public sector in perpetuity. Liberal Democrat Members cannot support reducing the size of the state and say with any credibility that the axe will not swing against the NHS in the long term. This is an ideological change, and they cannot escape that fact.

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[Mr Chuka Umunna (Streatham) (Lab)]

I have listened with interest to the various speeches made today and I do not think anybody denies the need to reduce the deficit. Neither do I think that my fellow Labour Members think that the answers all lie with government, but the big decisions that we are taking at the moment are about judgment and the direction in which we think economic strategy should go.

I want to pose some questions on those issues, because it is clear, on any analysis, that this Budget is going to hit everybody. My own view, which is obviously not shared on the other side of the House, is that it will hit the poorest and most vulnerable people in society hardest. How can it not, given the figures that we are looking at? The IFS data for 2012-13 leave no doubt of the Budget’s regressive nature. They make it clear for all to see: indeed, the Financial Times said yesterday that

“the result of cuts in government services will be felt more on Nottingham's estates than by the Notting Hill set.”

There has been a lot of talk in the Chamber today about comparisons with the situations in Greece and Canada, but in my view they are false. I think that the most appropriate comparison in many respects is a domestic one, and it was touched on by the hon. Member for Cities of London and Westminster (Mr Field). He is no longer in his place but he made a very interesting speech, in which he compared the present situation with the approach adopted by Geoffrey Howe and Margaret Thatcher. In fact, the Culture Secretary has been talking up the appropriateness of making comparisons with the Thatcher Budget of 1981 and the general economic strategy of that Conservative Government.

There are differences—we are in a different time, and the economic circumstances are not the same—but what is being done with this Budget has strong parallels with what was done in the early 1980s. Geoffrey Howe raised VAT from 8% to 15% in 1979, following an election campaign in which he said that his party had absolutely no intention of hiking up the tax. Today, of course, the Chancellor has raised VAT from 17.5% to 20%, following an election campaign in which he—and his coalition partners in particular—said that they had no plans to increase VAT.

Geoffrey Howe slashed benefits in the 1980s: the 1981 Budget made sickness benefits and unemployment benefits taxable, and unemployment benefit for the over-60s was reduced. The Chancellor today has done similar things today: among many other things, he has cut child benefit and disability living allowance, and reduced tax credits for young parents earning just £15,000 each.

The reactions from the national commentariat are similar too. In 1981, 364 economists signed a letter to The Times warning that the Thatcher Government’s policies would deepen recession and threaten social and political stability. In April this year, 80 economists signed a letter to The Times warning that the current Tory Government’s approach would lead to job losses that would affect spending and confidence and tip us back into recession.

Surprisingly, Washington in some respects took a more cautious approach, then as now. In 1981, just after Geoffrey Howe’s Budget, President Reagan signed the Economic Recovery Tax Act to stimulate US consumption. This month, President Obama wrote to the Prime Minister and other G20 leaders to remind them of the dangers of withdrawing stimulus and engaging in fiscal consolidation too quickly.

What were the effects of the approach adopted by Geoffrey Howe in the 1980s? I can describe what they were in my constituency, in which I am proud to say that I have lived all my life. In April 1981 my mother was out shopping with my sister and me in the middle of Brixton when the riots broke out. I was too young—just two and half—to be able to remember what happened, but my mother remembers it well, and it was terrifying.

Soon after those riots, Lord Scarman was appointed to hold an inquiry into what caused them. It is well known that racism in the police at the time was a major factor, and the rioting was attributed to a loss of confidence in the police among significant sections of the population in my constituency and the other two constituencies in the Brixton area. However, although the report said that

“the social conditions in Brixton do not provide an excuse for disorder”

it added that

“the disorders cannot be fully understood unless they are seen in the context of complex political, social and economic factors”.

The report continued:

“There can be no doubt that”

unemployment

“was a major factor in the complex pattern of conditions which lies at the root of the disorders in Brixton and elsewhere. In a materialistic society, the relative deprivation it entails is keenly felt, and idleness gives time for resentment and envy to grow.”

With regard to the Tulse Hill estate—I have just come from that estate to the House today—it was pointed out that high unemployment, coupled with society’s emphasis on material acquisition, led to both material deprivation and a sense of hopelessness, particularly among the youth. Of course we know what happened after that: unemployment rocketed beyond the 3 million barrier and stayed there until 1987.

[Kwasi Kwarteng]

Is the hon. Gentleman seriously suggesting that riots on the scale witnessed in Brixton in 1981 will come as a result of the Budget?

[Mr Umunna]

No, I am not, but I am seeking to point out what happens when people take a cold, dispassionate and inhuman approach to economics and neglect to consider the consequences of their actions.

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[Toby Perkins]

I was certainly bewildered by the Secretary of State for Energy and Climate Change’s contribution in opening this debate, and by the idea that when the Liberal Democrats talked about the tax bombshell, what they meant was that VAT was regressive only if it was levied on food, a suggestion that nobody had made and which was never part of the debate. His speech was one of the most bizarre contributions that we have heard over the past three days. I look forward to watching it on iPlayer tonight and reliving the moment, because it is something that will live long in the memory.

I want to talk about the choice that the Labour party made. What we enjoyed under the previous Labour Government was 11 years of stable economic growth. That was the longest period of stable economic growth in this country’s history, yet unlike the Conservatives, we went into recession only when the entire world went into recession. The Conservatives did it differently: they could go into recession when the rest of Europe was in a strong position. It was only the global economic crisis that threw the economy off course under a Labour Government.

[Kwasi Kwarteng]

Will the hon. Gentleman enlighten me on one thing? What does he think the former Prime Minister and then Chancellor meant when he suggested that there would be no more boom and bust?

[Toby Perkins]

What he was probably referring to was 11 years of stable economic growth. What he did not foresee was that we would be hit by the biggest global economic crisis for more than 80 years. Of course, nobody foresaw that. There were no Conservative Members suggesting that the ways in which our banks were regulated would lead to the economic crisis. To pretend that you knew that that was coming or that the deficit that has been built up is somehow irrelevant to that is just ludicrous, and no one believes you, so you really must stop trying to treat people like fools when you say that the deficit that has been created was something that happened just because we had a Labour Government—

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[Kwasi Kwarteng (Spelthorne) (Con)]

I am very grateful to you for calling me to speak in the debate, Mr Deputy Speaker, and I feel privileged to follow my hon. Friends the Members for West Suffolk (Matthew Hancock) and for Bromsgrove (Sajid Javid), who outlined in their compelling speeches why the Budget is incredibly important. The issue that we have not really focused on enough is the context of the Budget. We all—even Opposition Members—accept that the deficit is too large and that at some point in this Parliament we have to deal with it. The big point of contention between the coalition Government and the Opposition is how soon we should grapple with the deficit.

We forget the fair hopes that we had in 1997 when the then Chancellor of the Exchequer produced his first Budget, entitled “Equipping Britain for our long-term future”. That was the message that he wanted to send. That financial statement and Budget report came out in July 1997, and it was in that report that he famously stated his golden rule:

“The golden rule means that over the economic cycle the Government will borrow only to finance public investment and not to fund current expenditure.”

So far so good. The second rule was that he would maintain stable public finances—a requirement for our long-term economic stability.

[Toby Perkins]

The hon. Gentleman will be aware that those rules were changed only in the face of huge, global economic crisis. His party supported the change when the economic crisis struck, so was it incorrect to do that?

[Kwasi Kwarteng]

The hon. Gentleman will remember that the second rule was that

“public debt as a proportion of national income will be held over the economic cycle at a stable and prudent level.”

The then Chancellor concluded the 1997 report by stating:

“These rules will ensure that borrowing will be kept under firm control.”

Everyone applauded him. He was talking about prudence; he was the Iron Chancellor and very much the hero of the hour. In the same report, he referred to the recession of the early 1990s. His conclusion was that the public sector borrowing requirement rose to a peak at 7% of GDP and he said:

“The Government regards it as important that no similar risks should be taken with fiscal policy again.”

That was the position of the Labour party in 1997, and in 2006 Labour was repeating the same mantra and the same pie in the sky ideas. It was saying that

“public sector net debt is projected to remain low and stable over the forecast period”.

In 2007, it said:

“The Budget 2007 projections for the public finances are broadly in line with the 2006 Pre Budget Report”,

and so on.

[David Wright]

Will the hon. Gentleman outline what spending he would have cut between 1997 and 2007?

[Kwasi Kwarteng]

I am merely stating the very prudent rules that the former Chancellor and Prime Minister outlined. All the rules that he set in place in 1997—[Interruption.] The hon. Gentleman asked a question and I want to answer it. All those rules were ripped apart. The PSBR figure of 7% of GDP, which the then Chancellor had thought was a scandal, went up to 12%. According to the very rules that he set, we have failed and been found wanting. It is in that context that my right hon. Friend the Chancellor of the Exchequer introduced his bold and comprehensive Budget on Monday. It was only because we had to do this that the Budget was introduced to this House. It was not part of any ideology or master plan; it was an act of dire necessity.

I thought that the most interesting contribution in the debate was that of my right hon. Friend the Business Secretary, who recalled with a lot of emotion and understanding the experience of 1976. It was exactly that experience, when another Labour Government had bankrupted the country and had to go to the International Monetary Fund, that he was so anxious to avoid. It is in that spirit that the Budget has been introduced to the House and that is why I am very happy to commend this Budget and to go through the Aye Lobby to vote for it on Monday.